Next Up: The Great Brazilian Bailout

Sunday - September 27, 1998 at 8:12 pm

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by Patrick J. Buchanan – September 27, 1998

In his marvelous novel “The Bonfire of the Vanities,” Tom Wolfe called them “Masters of the Universe” — the bond traders who worked high above Wall Street, earning princely fortunes buying and selling billions in bonds on the movement of a quarter penny in price.

Well, now, our global gamblers are suffering a streak of rotten luck. And to their rescue is riding Alan Greenspan and the Fed, the International Monetary Fund and the World Bank. Coming soon: the mother of all bailouts.

It began on Sept. 23, when Greenspan reversed course and declared in near panic that the Federal Reserve was now almost certain to cut interest rates at its next meeting. What caused Alan’s hairpin turn?

The Greenspan pirouette occurred at the precise moment the Federal Reserve Bank of New York was presiding over a $3.5 billion bailout of a giant private “hedge fund” called Long Term Capital Management, run by financial wizard John Meriwether. Long Term is facing losses on $100 billion of bad bets in global financial markets. As creditors pumped in the cash, Greenspan dropped his bomb, driving up stock prices and investment portfolios 3 percent in hours.

As there is no credit crunch in Middle America, Greenspan is now making Fed policy for the big banks and the investment community. It’s good to know Alan’s heart still belongs to the Street.

But look south, where an even larger disaster looms. With $1 billion leaving the country daily, and $50 billion in reserves, Brazil faces $70 billion in debt payments by Halloween. President Fernando Cardoso is paying investors 50 percent interest to keep money in Brazil until his Oct. 4 election, after which default is inevitable.

But if Brazil defaults, the Masters of the Universe will take the mother of all baths because other Latin nations will follow Brazil, and devalue and default. Thus, look for the IMF and World Bank to mount a monster bailout. Purpose: To get billions of dollars down to Rio, so Cardoso can pay the Masters of the Universe their entire principal, plus their loan-shark interest, to calm Latin markets.

Who will provide that $40 billion and eventually lose that $40 billion? Right again. U.S. taxpayers will be conscripted to pony up the bailout money, take the risks and eventually eat the losses.

So the world goes as we come down to the end of the century.

In the 19th century, U.S. economic policy, now disparaged as wicked protectionism, was crafted to protect America’s industrial base, her sovereignty, the highest wages in the world and the highest standard of living on Earth — for Americans.

From George Washington to Alexander Hamilton, James Madison, Andrew Jackson, Abraham Lincoln and Theodore Roosevelt, we did not apologize for putting America first. Thus did Americans become the most prosperous people the world had ever seen, and America the envy of all nations.

That was the old protectionism. The new protectionism, which dare not speak its name, protects the investments of the Masters of the Universe and a global elite — men like George Soros and the Russian “reformers,” Third World collaborators like Cardoso and Mexico’s Carlos Salinas, and institutions like Citicorp, Goldman Sachs and Chase Manhattan.

How does the new protectionism work? Elementary. When the Global Economy is humming, the Masters of the Universe pocket legendary profits from gambling and speculating in currencies and stocks in all the hot markets of the world. When the markets go bust, the IMF, World Bank and G-7 governments rush in with scores of billions in bailout cash, so the Asian and Latin regimes have enough money to pay off the investment losses. It’s called “maintaining investor confidence.”

How do the governments pay back the IMF? Two ways: One is by fresh loans from the IMF and World Bank to pay off the investors’ losses, which is why the IMF needs $18 billion quick from Congress.

The other is by allowing Asia and Latin America to export at will into the U.S. market and run up gigantic trade surpluses.

From the Asian crisis to this year’s end, IMF-led bailouts may hit $200 billion, and this year alone, the United States is running a trade deficit in merchandise of $250 billion. A net quarter trillion dollars is pouring out, this year alone, for imports that are taking down American plants and jobs.

Our 1998 trade deficit in cars and trucks will hit $60 billion; in total manufactured goods, $200 billion. The lately modernized U.S. steel industry is being hammered by Japanese imports, up over 140 percent this year.

Call it devaluation dumping. To save the reputations and portfolios of the Masters of the Universe, American industries and jobs, and the economic security of our country, are being sacrificed to the gods of the Global Economy. Meanwhile, watch Brazil.